One of the primary arguments that the world is in “recovery” comes from the decoupling argument: namely that emerging market economies have grown to the point that they will hold up even if there’s a downturn in the US economy.
For certain, emerging market economies have indeed experienced economic growth and stock market gains far exceeding those of the US and other developed countries. Possibly, the best example of this is Brazil which has seen an inflow of fresh capital from investors looking for greater returns that those proffered by developed nations and increased domestic growth courtesy of commodity prices rising (Brazil is the largest exporter of many commodities).
In simple terms, the fundamentals in Brazil were much better than those in the US in the post-2008 Crash period. As a result of this, the Brazilian market bottomed in November 2008 (compared to March 2009 for the S&P 500), and more than tripled from its market bottom vs. a 95% rally in the S&P 500.
Given this relative strength, many bulls believe that Brazil (and other emerging markets like it) have “decoupled” from the US economy, meaning that these emerging market economies are strong enough to stand on their own two legs and will hold up regardless of what happens in the US.
However, this whole belief came crashing down earlier this year when the Brazilian market first peaked out before falling further than the S&P 500 in this latest market rout: the Brazilian ETF is now 23% off its highs compared to 16% for the S&P 500.
Moreover, Brazil’s growth forecasts have now been lowered for three weeks in a row as inflation soars and the global economy slows. Indeed, even Brazilian economists have noted that the global economy slowing is impacting Brazil:
Forecasts for Brazil’s economic growth are being driven lower by its tighter monetary policy and a slowing global economy, a central bank survey showed on Monday, signaling a steeper-than-expected slowdown is looming.
The central bank survey found that forecasts for economic growth this year fell for a third week to a median 3.84 percent in the week ended Aug. 19.
The situation holds true for China (the emerging market “darling”) as well: the Chinese market is over 20% off its highs and Chinese GDP estimates are falling. So right off the bat we see the “emerging market decoupling” thesis being refuted by both the markets AND mainstream economists.
Indeed, it is quite telling that the S&P 500 has fallen far less than the BRIC markets: the S&P 500 is 16% off its highs, while Brazil is off 23%, Russia is off 22%, China is off 20%, and India is off 28%.
So right off the bat, the “emerging market decoupling” argument falls flat on its face. So scratch that as a reason that the global economy and financial markets will improve in the near future.
Indeed, I fully believe we have entered the Second Round of the Great Crisis: the Sovereign Default Round. What’s coming will involve stock crashes, civil unrest, food shortages, bank holidays and more. Many people are going to see their portfolios get completely destroyed.
You don’t have to be one of them.
I can show you how to turn this period into a time of profits, NOT pain. To whit, my clients actually made money in 2008, having been warned a full three weeks in advance of the Crash to get out the market and go short.
I believe we could see another 2008 situation unfold in the near future, which is why I just unveiled six specific trades to Private Wealth Advisory subscribers… all of which will pay off HUGE returns as the current stock market collapse accelerates.
We’ve also taken steps to prepare ourselves sand our loved ones for what’s coming to the US economy (bank holidays, food shortages, stock Crashes, debt defaults, civil unrest and more) with my Protect Your Family, Protect Your Savings, and Protect Your Portfolio reports: 40+ pages of material devoted to showing individual investors how to prepare these areas of their lives in great detail.
So we’re ready for whatever may come. And the worse things get… the more profitable our strategy will be.
If you’ve yet to take these steps yourself, it’s not too late… in fact, you’ve still got time to get your financial “house” in order to not only survive what’s coming… but potentially even make serious money from it.
All you need to do is take out a “trial” subscription to my Private Wealth Advisory newsletter. You’ll immediately be given access to the Private Wealth Advisory archives. You’ll also receive copies of the reports I detail above… and you’ll also be on my private client list to receive my bi-weekly investment reports as well as real-time trade updates on when to buy and sell various investments.
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To get started with you Private Wealth Advisory subscription today, download the Protect Your Family, Protect Your Savings, and Protect Your Portfolio reports and start taking action to prepare for what’s coming…
Good Investing!
Graham Summers
Editor In Chief
Gains Pains & Capital
